Hi, I'm new to this group and to the property market. I'm interested in buying my first home and intend to use it as my PPR. To subsidise my repayments I am thinking of renting out the second bedroom. I would like advice on our this will affect CGT. Will I only have to pay it on the proportion of the property rented out ie. approx. 40% and if, for example, I only rent it out for a year, will I be exempt from CGT for the remainder of the time I own the property. Also, will I still be eligible for the stamp duty exemption for first home buyers if I do proceed in renting the other room? Cheers!
Yes it will be subject to CGT as the property will be income producing. Yes it would need to be apportioned.
I heard about someone once who instead of charging rent set up a cash tin in the kitchen for "voluntary contributions to stuff". Mind you they never claimed deductions either.
Board relates to providing a bedroom and shared use of facilities eg bathroom and kitchen. If the person is unrelated then the ATO consider that its a form of rental income no matter what you call it. The ATO view on board is that ...payments from a family member for board or lodging are considered to be domestic arrangements and are not rental income. In these situations, you also can't claim income tax deductions. Otherwise its rent and a share of the costs of ownership may however offset the income typically based on area. eg 2 bedroom unit may be 50%. The CGT concern that arises may not be as bad as many think. Firstly an apportionment of the total period is needed. So in that example if it was a permanent issue then 50% would be subject to CGT. However if just 1 year of three years then it would be 8.333% would be subject to tax. And third element costs may reduce the total gain subject to 8.33%. 3rd element costs include all your non-deductible ownership costs in that 12mths so half of interest, rates, strata, insurance may be deductible AND also 50% (that wasnt deductible) for one year + 100% for the next two years may increase the costbase so that CGT profit is reduced then calculate 8.333%. To access the maximum benefit of 3rd element costs important that the renting of the room start from day one, not later. The second catch is the CGT special rule for a property used to produce income for the first time. It has a nasty catch. Normally when you buy a property its cost + legals + duty are its costbase. But if lets say after 2 weeks you rent a room then s118-192 may force the issue and REDUCE the costbase to its market value (ie what you paid NOT including duty and legals)...So more CGT to pay :-( Thats a further reason to get the bedroom rented from day one (or set aside and available to rent
